Building east coast gas crunch uncovers fresh thinking

While years in the making, the slow-motion car crash of Australia's east coast gas market has started to claim victims this year, giving fresh urgency to discussions at the annual APPEA oil and gas conference

But notable also was growing traction for the idea that part of the solution could come from the very sector many see as a competitor to gas: renewables.

I think we'll look back at this as a pivotal APPEA.

— Gero Farruggio, Rystad Energy

Increasingly, oil and gas producers are no longer bracing for a fight with the renewable sector but actively embracing its opportunities. Hopes are building that a mix of solar, wind and batteries could help ease the overstretched eastern gas market.

On the calculations of Gero Farruggio, Australian head of global consultancy Rystad Energy, the broad adoption of renewables and storage could boost gas available on the east coast by 10 per cent, without any discoveries or imports.

Related Quotes

Advertisement

The savings would come from powering energy-intensive gas gathering, oil field pumping and even – at least partially – processing from remote Australia's rich resource of renewables, rather than using up scarce and valuable gas.

"I think we'll look back at this as a pivotal APPEA," Mr Farruggio said. "By the end of the conference one of the key things that kept getting pulled into the debate was the opportunity for renewables to be a solution to the east coast gas challenge."

"We're the first to do this but I am sure we won't be the last," said Conoco's president Australia West Chris Wilson. "You'll probably see more of these popping up in other places, and offshore, too."

"As well as cutting our carbon footprint, the Darwin LNG battery project – as with our solar and battery project in the Cooper – cuts costs and means we can sell more gas,” Santos chief executive Kevin Gallagher spelt out.

Gas import terminals aren't the answer for manufacturers. Supplied

Woodside Petroleum is meanwhile looking at solar-plus-gas opportunities, with a view to testing the significant potential to reduce gas use at its Karratha LNG facilities.

Advertisement

The drivers are commercial, not just environmental, even as the industry works to meet increasingly stringent emissions standards expected of them by state regulators, investors and other stakeholders, whatever the persuasion of the prevailing federal government.

As Farruggio notes, Santos currently uses 15 per cent of the gas produced at its large-scale Cooper Basin activities in central Australia within the operations themselves, an equation that doesn't make sense at current east coast gas prices. Rystad puts the saving for Santos at $70 million a year from freeing up gas for sale.

Still, while the gas-saving potential of renewables offers a glimmer of hope for energy users, it does little to offer immediate relief. Most industrial Australian gas users will pay more than $9 a gigajoule for gas this year, and some over $11, the ACCC found in its latest examination of the east coast market.

It makes grim reading for manufacturers such as Incitec Pivot approaching crucial decisions on plant closure. Chief executive Jeanne Johns said in May that Incitec needs replacement gas not just at the same price – believed to be about $8 a gigajoule – but at a lower tariff to avoid a shutdown and save 430 direct jobs.

One of the few energy users to address the conference, Brickworks general manager energy Melissa Perrow, suggested governments consider funding new gas pipelines or expansions, and supporting smaller producers, reminding that the impact is on electricity as well as on gas.

"This scheme could be like the Clean Energy Finance Corporation; except that its objective would be to provide funding to prevent gas shortages and to increase market competition," she said.

Ms Perrow went further, questioning why the same sort of compensation allowable for renewable electricity costs for emissions-intensive, trade-exposed industries is not also an answer for large gas users.

Advertisement

Certainly most manufacturers hold out little hope that any of the five proposed LNG import terminals in the south east will help. They may offer a solution on supply, but not on price.

Still, the unscientific restrictions on onshore gas in Victoria and NSW have opened up the bizarre situation where LNG imports look increasingly set to become a reality in the south east even as Australia takes the mantle of the world's biggest LNG exporter.

Meanwhile, to the frustration of both gas producers and buyers, Santos' $3 billion Narrabri coal seam gas project still awaits NSW planning approval, while the significant potential for onshore gas in Victoria remains untested. Brickworks is among three manufacturers to have provisionally signed up for Narrabri gas.

"The cheapest gas is the gas that’s produced closest to the market where it’s consumed," APPEA and Shell Australia chairman Zoe Yujnovich said, finding support from the ACCC's Mr Sims and federal resources minister Matthew Canavan. As Santos' Mr Gallagher spelt out daily to the conference, Narrabri gas would always undercut imports on price.